The Joseph Rowntree Foundation calculates the cost of living for those living on minimum wage is rising faster than inflation.

It believes the cost for a single household on its low-income budget is up 5.3% this year. Pensioners and couples with children budget rose by 5%. This is primarily thought to be due to higher funds needed for food, fuel and public transport.

A quarter of households are thought to fall below what Rowntree calls the ‘minimum income level’ and the report warns that benefits paid to workers are below minimum income standards.

It does however, show that pensioners getting the full amount of pensioner credit receive enough to meet the minimum income standard.

The group created the baseline measure last year to determine the income people need in order to reach a ‘minimum socially acceptable standard of living’. This includes having ‘what you need to in order to have the opportunities and choice necessary to participate in society’.

These figures come from a survey distributed among the public about expenditure and essentials. The preliminary findings show that, despite the recession, the public still believe the ‘minimum standard of living should allow people in Britain not just to survive, but to play a full part in society.’

Singles & Lone Parents To Suffer

The group also notes that many people are worried that their incomes may not be enough to get them through the economic downturn while still meeting the minimum acceptable standard of living.

It also warns that people losing their jobs will have to survive on half of that minimum standard. On this, the survey showed that the average single person of working age will only receive benefits worth 42% of the minimum income needed. Lone parents with a child could receive 67% of the minimum.

It suggests the national minimum wage would have to be increased by £1 per hour to provide enough money to raise a single-earner household out of relative poverty.

The report attempts to raise debate about the level of what is considered relative poverty in the UK to above the government’s current poverty line of 60%. It also comes as the government prepares legislation to cut child poverty in half by 2020.

The report also suggests that relative poverty is likely to decrease or stabilise this year because of the recessions’ effects.

“This apparently beneficial effect on the poverty figures does not represent a real improvement in the living standards of people on low incomes,” it says. This is due to the cost of living increasing faster than for the average family.

It also says the standard of living could fall if the rate of inflation for those on minimum wage continues to be higher than general inflation rate. But people responding to the survey believe everyone should have access to items that meet key social needs, but there was scaling down when it came to how much should be spent to get these.

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New measures put down to help the Government crack down on rogue traders and consumer debt have been announced by their Consumer White Paper.

The paper: ‘A Better Deal For Consumers’, bans unsolicited credit card cheques in order to promote responsible lending and borrowing and provides longer term framework to enhance and enforce consumer rights in the wider economy.

The Measures

Some of the measures that will be put in place according to the Consumer White Paper include:

1. Reforms in the regulations of credit and store cards so that consumers are in more control of their borrowing which will help people avoid running up huge debt they can’t afford to pay back;

2. It bans unsolicited credit card cheques so that consumers unaware of high interest rate charges don’t get caught out;

3. A review by the Office of Fair Trading into the market for high cost credit, usually above 50% APR – pay day loans and door step lending;

4. The introduction of a new Consumer Advocate responsible for the co-ordination of work to educate consumers and help them get their money back when things go wrong has been appointed;

5. The courts will also get new powers in order to ban persistent rogue traders including a new national specialist team for internet enforcement tackling scams over the internet. They will also get money for a central ‘Fighting Fund’ to tackle large scale rogue traders; and a pilot scheme giving Trading Standards officers powers to help consumers reclaim their money;

6. Also, a Money Advice Trust new self-help tool-kit, and the Insolvency Service introduce a new Debtor’s Guide to help those in debt stay in control of their finance.

What Consumer Minister Kevin Brennan said:

“Consumers have been seriously affected by the past two years of turmoil in the financial markets, as well as by the longer term changes in the way that goods and services are bought and sold. We are taking decisive action now to prepare for the future. 

“We are delivering a new approach to consumer credit with a review of the regulation of credit card and store cards. We are imposing requirements on lenders to explain their products and to check creditworthiness before they lend, and revised OFT guidance to tackle irresponsible lending.

“There will also be tougher action against rogue traders and fraudsters who look for ways to fleece consumers out of their hard-earned cash, and a new emphasis on consumer rights spearheaded by the Consumer Advocate.”

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Slashing Records Again

Between January & March the UK economy contracted 2.4%, the highest it has reached in 51 years according to the latest figures.

Initial estimates were for a 1.9% fall, so the situation is worse than analysts at the Office for National Statistics (ONS) previously expected.

The weakened output in the construction and manufacturing industries are being blamed for this sharp revision of decline that also indicated that the recession started earlier than previously thought.

The ONS now says that the recession began during the second quarter of 2008 rather than the third. Therefore, it has now been running an entire year.

All Areas Suffer

According to the ONS, compared to the first quarter of 2008, economic output shrank by 4.9% by the end of the first quarter this year – the biggest yearly fall recorded.

This means that it will also be more difficult for the Treasury to reach its forecast of 3.5% decline in the UK economy for the year that was made in this April’s Budget. Though the Treasury has said it will not be revising its forecast.

The 2.4% decline seen between January & March is the highest it’s been since 1958 when it shrank 2.6%. Though a decline of 2.4% was also seen in 1979 as well.

The output in construction also decreased in the first quarter of the year by 6.9%; manufacturing output fell 5.5%; and the service sector by 1.6% with banking and financial industries leading this fall at 2.5%. Real household disposable income also fell by 2.4% as saving rates also dropped to 3%.

Economy Extremely Weak

Senior economic advisor of Ernst & Young, Andrew Goodwin, said the figures were worse than expected.

He said: “We had expected a downward revision to GDP, given the plunge in construction output since the last quarter, but the scale of revision comes as a real shock, and highlights the extreme weakness of the economy in the early months of the year.”

George Osborne, the shadow chancellor said that GDP figures show that the recession has been “longer and deeper than we had thought”.

“This also means that in the future, unemployment will be higher and Labour’s debt crisis will be even worse.”

Vince Cable of the Liberal Democrats also said: “Rather than making promises on public spending that nobody believes, the Government must start making tough choices on whether it is going to cut spending or raise taxes to bring the economy out of the red.”

However, despite the revision for the first quarter of this year, it is expected that official figures for April-June will not be as bad as initially predicted. These are due to be published at the end of July.

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The economic outlook for 2009 has been revised by the Organisation for Economic Cooperation and Development (OECD).

The organisation warns that the UK is in what it calls a ‘sharp recession’. The output is now set to contract 4.3% this year, as opposed to previous predictions of 3.7%.

It also predicts that there will be no growth in the UK economy in 2010 and that the UK budget deficit will hit 14% of GDP next year.

This forecast is worse than the Treasury made at the Budget, but many independent economic forecasters suggest the UK recession is bottoming out.

Worried About The UK’s Budget Deficit

The average prediction for independent economists is that UK economy will contract 3.7% in 2009, similar to the chancellor’s forecast of -3.5%.

The OECD’s particular worry is the size of the UK’s budget deficit: “public finances have deteriorated sharply… curtailing the possibilities for additional fiscal stimulus,” it says.

It adds that the UK is one of four countries where government borrowing is above 10% of GDP in 2010. It warns that, deficits need to be reined in as recovery takes hold, urging the government to develop a “concrete and comprehensive plan” ensuring debt is declining.

It believes that even if the UK reduces governmental borrowing by 1% of GDP a year for seven years, it will still have a gross debt-to-GDP ratio of 125% by 2017-one of the largest.

The Cause Of Political Disagreements

The OECD’s comments have caused political arguments to take place.

George Osborne, the country’s shadow chancellor says: “The OECD figures show just how deep Labour’s debt crisis is.

“The Projected record budget deficit is worse than the Treasury forecast, the worst in the developed world and double what it was when Dennis Healey had to go to the IMF.”

UK Economy One Of Worst Hit

The Chief Secretary to the Treasury, Liam Byrne however, had the following to say: “Britain had the space to fight back hard against the global downturn because we had lower debt than most G7 countries before the crisis broke.

“If we invest now we can stop the recession cutting long and deep.”

On the other hand, Liberal Democrat Treasury spokesman Vince Cable said: “there is no doubt that the UK economy has been one of the worst hit.

“What is particularly worrying is that the government seems to have no coherent plan to get the British economy back on course and the Budget back into place.”

World Recession ‘Nearing The Bottom’

The OECD is a little more optimistic about the world economy however as it believes the world economic recession is “nearing the bottom” after its sharp decrease in the six months before March.

It predicts a total fall of 4.1% this year, slightly better than the original -4.3% originally forecast.

Japan and Germany’s economies are expected to decline faster than the UK’s, but the OECD believes there are signs of strong growth in countries like the US and China.

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Robin Hood

Banks are not ‘Robin Hood in reverse’ when it comes to overdraft charges, the House of Lords has been told as seven banks and one Building Society petition he Office of Fair Trading regarding the regulation of their overdraft fees.

Jonathan Sumption QC says that banks aren’t taxing the overdrawn to help others but that overdraft fees involve a large element of cross-subsidy.

The result of the appeal of the OFT will decide if millions of bank customers are able to reclaim their past bank charges back or not.

According to Mr Sumption, current consumer contract regulations, the OFT does not have the power to regulate overdraft fees, and that these fees are required, but shouldn’t necessarily be fair.

Overdraft Charges ‘Fundamental’

In previous court battles, judges have upheld that the OFT has the right to make its opinion heard on the fairness of banking charges under the 1999 Consumer Contract Regulations. But Mr Sumption says this is wrong, and that in both cases the problem had been over-refined and overcomplicated the interpretation of the Regulations.

He also points out that the Regulations were not designed to mediate price control or the services offered. And therefore they do not apply to the main subject matter of a contract or the price being charged for it.

He said: “The overdraft charges are too fundamental to the bargain to be declared unfair.”

According to Mr Sumption, people who exceed their overdraft and have to pay charges are paying back the cost of providing a current account to those who are always in the black. Therefore the charges exceed the cost of dealing with an overdrawn customer because “the revenue stream is essential to the whole of the current account structure.”

OFT Raising The Stakes

Apparently cross-subsidies are also common in the banking industries like France, Canada and the US., and that they are common in their charging structures. He also compares them to mobile phone tariffs and airline ticket prices which people do not object to.

One of the Law Lords assigned to the case asked if bank charges included a surcharge to subsidise those who did not go overdrawn. Another suggests overdrawn customers be taxed for the benefit of others.

Mr Sumption said that banks were not operating a Robin Hood-like operation in reverse, saying that if the OFT were to succeed it might render all past overdraft payments unenforceable possibly leading to “restitution.”

“The OFT has significantly raised the stakes. The issues are of considerable importance to consumers and the future of retail banking.”

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India And China Lead The Way

According to the World Bank, the economies of developing countries are expected to grow by just 1.2% this year. This is compared to last year’s 5.9% and 8.1% in 2007.

If India and China are excluded from these figures, the gross domestic product in developing countries is predicted to fall by 1.6%.

The Banks annual Global Development Finance report also warns of the possibility of joblessness and poverty in developing nations along with the fact that the global economy as a whole could shrink by 2.9% this year, compared to earlier predictions of 3%.

The Bank report warns that the economic policies have to focus on the financial sector reformation and support the poorest countries as well as warning that the amount of money flowing into the world’s poorest countries is likely to halve this year.

Figures from the World Bank show that developing countries’ net private capital inflow has fallen from $1.2 trillion to £707 billion in just a year.

Will The Rich Aid The Poor?

The Bank also predicts that the private capital inflow for the worlds’ poorest countries could be as little as $363 billion this year.

The Bank is asking the richest economies in the world to help boost the flow of credit into the poorest nations in order to help speed up the economic recovery.

“Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit,” said the chief economist at the World Bank, Justin Lin.

The institution also warned that the weakness in the developing countries after recent years of growth could also heighten the risk of social unrest.

But despite the negative outlook for the year, the Bank says that the growth in developing countries could reach 4.4% in 2010 and 5.7% by 2011. Primarily this will be down to India and Chinas’ contributions.

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Charity Grandparents Plus has found that young grandparents caring for their grandchildren or their own elderly parents are increasingly facing poverty.

A third of grandparents under 55 years old in the UK are struggling financially. Also, there was an increase in ‘gran-carers’ living alone on low incomes.

The report is called the Poor Generation?, and describes an ‘invisible generation’ that is caught between what their children, grandchildren and their parents need. Sam Smethers of the charity says it “challenges the cosy image we have of the retired grandparent.”

Those who have four or five generation families that are single, working class grandmothers are finding themselves particularly trapped in their obligations to look after people, getting caught in the cycle of living on a low income and acting as unpaid carers.

Torn Obligations

Ms Smethers adds: “For many, particularly ‘gran-carers’ who are of working age, on low incomes and who provide most of the childcare, it’s a real struggle.

They get no help with the challenge of combining work and care. As a result we see them taking low-paid, part-time work or dropping out of the labour market altogether.”

The overall trend of today’s society is for women to have children later in life which in turn pushes back the age of people becoming grandparents. But this report highlights the group at the opposite end of the scale.

There are1.5 million grandparents under the age of 50. Most of these are from less affluent families.

The report shows that younger grandparents are usually lone grandmothers and are three times more financially stretched than those with partners.

Rights For Carer Grandparents

It also shows that the number of single grandparents has doubled in the last ten years, and the number of grandparents on low incomes has risen by a third.

Single children of young grandparents will be particularly dependent and half of such children will rely primarily on grandparents to provide childcare.

The charity asks that carer grandparents be able to work flexible hours, and that they can have ‘granny leave’ when a grandchild is born. They also want grandparents to be eligible for childcare benefit if it allows the child’s parent to work.

Ms Smethers says: “Although overall the grandparent generation is getting older, it is younger, working-class grandparents who are most likely to suffer financial hardship.

“We want this reality to be recognised by paying grandparents through the tax credit system for the childcare they provide.”

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High Figures Bring Bad News
 
Office for National Statistics figures show that unemployment rose to 2.261 million in the three months to April, the highest since November 1996.

The jobless rate also rose to 7.2%, the highest it has been since July 1997. While the number claiming unemployment benefit rose by 39,000 in May, which was much less than the original estimation of 60,000.

Young people are among the worst hit, with the unemployment rate of 18-24 year olds currently standing at 16.6%. And the claimant count rate rose to 4.8%, its highest since 1997.

Average earnings did however rise by 0.8% which was higher than expected, but this reflects the time of bonuses.

Young People Suffer Most

There were 271,000 people less in work over this three month period, the biggest quarterly drop since 1971 when the records began. And the number of job vacancies also fell by 35.6% compared from May last year to May 2009.

Young people are particularly suffering in the recession. In the first three months of the year 462,000 young people between 16-17 were employed, 16.5% less than in the same quarter of 2008.

Also in the same three months, 3.5 million aged 18-24 were employed, 4.8% less than the same time in 2008. Along with the unemployment range in the younger age group being 16.6%, the highest since 1993.

The General Secretary of the TUC, Brendan Barber said: “Youth unemployment is now at its highest for 15 years. And it will get worse when millions of fresh school leavers graduate and start looking for work in the coming weeks.”

Still Hope

The only age group that have increased in employment numbers are those of retirement age, with a rise of 2.6%. Analysts believe this means that the recession could be coming to an end but also say that it is too early to come to a firm conclusion.

The Chief Economist for the British Chambers of Commerce said: “These jobless figures are slightly better than feared, but the overall situation remains grim… It is much too early to talk about the end of recession and it is important not to withdraw the policy stimulus before there is firmer evidence that the economy has stabilised.”

On a less positive note, Alan Clark, an economist for BNP Paribas added: “The economy may actually start to expand, but it won’t be very fast… and until the economy is growing in line with its long-term average we will continue to lose jobs and we will continue to see downward pressure on wages.”

“It’s better than expected. It is probably still too soon to conclude that we have reached any turning point, but it is moderately encouraging,” added Ross Walker, UK economist at RBS Financial Markets.

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British Chancellor Alistair Darling claims that there are no plans for a fundamental reform of the structure of the system regulating the UK financial institutions as the current system is not to blame for the credit crunch, but rather the bosses running the banks.

He therefore wants to improve the quality of the regulators running the banks.

The current system employs a tripartite system of the Treasury, the Bank of England and Financial Services Authority (FSA). It was introduced when the current Prime Minister, Gordon Brown, was still Chancellor. But it has been widely criticised recently for failing to prevent banks from taking excessive risks.

Mr Darling says that the overall regulation needs to be improved on the current system, but that the main problem that needs to be addressed with the current system is in the board room.
“It needs to be more intrusive and needs to ask harder questions. Too many people did not understand the risks to which they were being exposed. You’ve got to make sure you’ve got the right people there to make the right judgements.”

US Make Changes Of Their Own

On the other hand, the US has recently unveiled huge changes to its financial system to prevent any further financial problems. The changes include new powers being given to the Federal  Reserve to oversee the relationship between financial institutions.

The Federal Reserve will also require financial firms to hold more capital in case of further crises to avoid what happened last year when the investment bank Lehman Brothers collapsed, posing a serious threat to the financial system.

According to Mr Darling, these changes by the US are similar to what the UK did 10 years ago.

He said: “Having stabilised the banking sector, we are faced with the challenge of building a stronger, more efficient and more resilient financial sector in the future. Anyone who thinks we can carry on as if nothing has happened should think again. In every country we are paying a huge price for this crisis. Not just the financial cost but also a profound social and human cost.

“I strongly believe that the process of learning lessons has to start in the boardroom, bank boards must have the right people, skills and experience to manage themselves effectively… their focus must be long-term wealth creation, not short-term profits.”

He also suggested that the planned paper on reforming the banking industry that is due to be released in a fortnight, will be much less forceful than was originally planned.

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Stabilisation Beginning?

G8 finance ministers warn that though the world’s largest economies are beginning to stabilise, they still face some major risks as the global recession continues.

At the G8 nations meeting in Italy, the ministers say that stock markets were rising, interest rates are gaining stability and consumer confidence was returning. But the US Treasury chief, Tim Geithner warned that it’s too early to wind down economic stimulus packages, which should remain in place until global recovery is underway.

The meeting in Lecce aimed to lay down the beginnings of a full G8 conference next month in the town of L’Aquila, which was recently hit by an earthquake. But the finance ministers have also recognised that the global situation remains ‘uncertain’.

In a statement released at the end of their meeting, the ministers said that “significant risks remain to economic and financial stability.” This includes the possibility of further rises in unemployment even after output growth resumes.

The statement says: “We have taken forceful and co-ordinated action to stabilise the financial sector and provide stimulus to restore economic growth and there are signs of stabilisation in our economies.”

Encouraging Early Signs

Mr Geithner notes that the early signs are encouraging but warned that: “The global economy is still operating well below potential and we still face acute challenges.

“I don’t think we’re at the point yet where we can say we have a recovery in place.” He added that it was too early to move away from interventionist economic policies that have been in place since September 2008.

Alistair Darling, Chancellor of the UK said that Britain’s economic prospects are still linked to the other G8 nations.

He commented that: “A lot will depend on other countries making progress: on cleaning up their bank balance sheets; volatility in commodity prices, oil for example. So I think there are reasons to be cautious.”

This meeting occurred just two months after the last G8 meeting in London where it was decided that the heads of government should inject billions into the global economy.

Finance ministers agreed to begin considering exit strategies from such extraordinary measures, but Mr Darling said they were not likely to come into play for a while yet: “One thing we are absolutely clear about is we are not there yet. No-one’s talking about existing now, this is some way down the track. We’ve still got to work through this.”

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